Technical View: Nifty forms large bearish candle, crucial support seen at 11,470

Nifty saw the biggest single-day fall in 2019 on July 8 as the government proposed imposing an additional surcharge on FPIs and Punjab National Bank detected another alleged fraud.

The index broke its multiple support of 11,600–11,650 and closed below the same after 35 trading sessions. It closed below 50-DEMA and formed large bearish candle on daily charts as bears have dominated the grip in the market.

After breaking crucial supports, experts turned more cautious and said it could fall towards 200-day exponential moving average (11,270) if it breaks 11,470.

India VIX moved up 7.33 percent to 14.01. Volatility is moving higher after the decline of five trading sessions.

Nifty opened sharply lower at 11,770.40 and extended losses as the day progressed to hit an intraday low of 11,523.30. The index closed 252.60 points lower at 11,558.60.

"Nifty registered a large bearish candle as it opened the session on a gap down note. In this process it also erased the laborious rally of 11 sessions from the lows of 11,625–11,969 in just two sessions hinting that a new leg of downswing is in progress from the budget day highs of 11,982," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

He said in the near term critical supports are placed around 11,470 and 11,426 from where some stability can be expected but a breach of 11,426 on closing basis may drag the indices further towards its 200-day exponential moving average (11,270).

As the trajectory of the index is clearly looking downward, traders are advised to create fresh short positions by making use of rally towards 11,625–11,700, he added.

Mazhar Mohammad feels the strength in the index shall not be expected unless it closes above 11,800.

For Nifty options, maximum Put open interest (OI) was at 11,300 followed by 11,500 strike while maximum Call OI was at 12,000 followed by 12,500 strike.

We saw Put writing at 11,600 then 11,200 strike while meaningful Call writing was seen at 11,700 followed by 11,800 strike. Experts feel Option data suggests a lower trading range of 11,400 to 11,800.

Bank Nifty fell sharply and corrected tanked 900 points and headed towards its 50-DEMA. It closed at 30,603.85, down 2.77 percent.

"It formed a bearish candle after multiple Dojis on the daily scale and broke its rising trend line by falling below key support of 31,313 and 31,000. Now, till it remains below 31,000, it could continue its weakness towards next major support of 30,250," Chandan Taparia, Associate Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

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